Broker-Dealer Litigation - Greenberg Traurig LLP

timely and complete information updates about the project to the sales representatives. He
infrequently walked the floor listening to the sales representatives’ phone conversations with
investors, and on one occasion failed to correct inaccurate information provided by a sales
representative to a potential investor. Finally, the president made his own misrepresentations to
investors by, among other things, misrepresenting the production potential of the wells and
omitting material information from them. The judge found that the president’s conduct was
egregious. The president was barred from associating with any broker, dealer, investment
advisor, municipal securities dealer, or transfer agent. He was also ordered to pay a civil
monetary penalty in the amount of $130,000.
In re Inv. Placement Group, Release No. 66055, 2011 SEC LEXIS 4547 (Dec. 23, 2011).
The Securities and Exchange Commission instituted public administrative proceedings
against a broker-dealer and the broker-dealer’s chief operating officer. In anticipation of the
institution of those proceedings, respondents submitted offers of settlement which the SEC
accepted. The SEC alleged that the respondents failed to reasonably supervise a former
registered representative and trader who engaged in a fraudulent interpositioning scheme.
During the interpositioning scheme, the registered representative violated Section 17(a) of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5
by needlessly interposing a Mexican brokerage firm into certain securities transactions. As a
result of the representative’s misconduct, certain institutional clients, including four Mexican
pension funds, paid approximately $65 million more for certain credit-linked notes than they
would have paid had the Mexican brokerage firm not been interposed as a “middle man.” The
representative’s fraudulent scheme went undetected by the broker-dealer due to its failure to
establish adequate policies and procedures and a system for implementing those procedures
which would reasonably be expected to prevent and detect interpositioning by its traders. During
the relevant period, the chief operating officer was directly responsible for supervising the
registered representative and overseeing the trading room. The chief operating officer, however,
delegated supervisory oversight of the trading to the registered representative, which effectively
allowed the registered representative to supervise himself. Further, the chief operating officer
failed to respond to red flags regarding the registered representative’s fraudulent scheme,
including a dramatic rise in revenue resulting from the interpositioned transactions. Without
admitting or denying the allegations, the broker-dealer consented to a censure and fine of
$260,000. The broker-dealer also paid disgorgement of over $3.5 million and prejudgment
interest of $240,000. The chief operating officer accepted suspension from association in a
supervisory capacity with any broker, dealer, or investment advisor for a period of three months.
H.5
I. Private Rights of Action for Violations of SRO Rules
I.
Fiero v. Fin. Ind. Reg. Auth., Inc., 660 F.3d 569 (2d Cir. 2011).
A brokerage firm brought an action in federal court against FINRA seeking declaratory
judgment that the SRO did not have authority to bring a court action to collect disciplinary fines
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